Landlords, brokers bullish on 2016 office market in Westchester
A panel of commercial office brokers and landlords in Westchester might have helped promote good digestion in the audience at the recent BOMA Westchester State of the Market luncheon with its optimistic predictions for the county”™s several-years-stagnant office market in 2016.
“I think 2016 is going to be a turning point in the history of Westchester County,” said developer Robert P. Weisz, president and CEO of RPW Group Inc. in Rye Brook.
Weisz pointed to “a very dramatic turnaround” in the county”™s office market in the past six months. During that time, 10 percent of space in his four Class A buildings in White Plains, Rye Brook and Harrison was leased, a level of leasing activity not since seen since 2007, he said. That was before the credit market crisis, Great Recession and flood of company downsizings and closings darkened office spaces, slowed leasing volume and made for leaner income and darker humor among commercial brokers.
“We”™re seeing a lot of activity on the medical end,” Weisz told the yearly gathering of the county chapter of the Building Owners and Managers Association at the Crowne Plaza in White Plains.
That expansion by major hospitals, physician groups and other health care-related businesses into underused office parks and new construction in Westchester brought Weisz in January a newly signed deal with Manhattan”™s Hospital for Special Surgery (see related story, page 5).
The world-renowned Upper East Side institution, the nation”™s perennially top-ranked hospital for orthopedics, has leased 50,000 square feet of space at 1133 Westchester Ave. in White Plains, a former IBM Corp. building renovated and converted by Weisz for multitenant use. Expected to open in the fourth quarter of 2017 following a build-out that hospital officials said will start in September, the facility will be the largest outpatient center in Hospital for Special Surgery”™s four-state specialty health care system.
“We think that 2016 is going to be a confirmation of what we”™ve seen in 2015,” Weisz said. He said he expects office vacancies in the county to drop to single-digit levels.
CBRE in its recent year-end report calculated the countywide office vacancy rate at 20 percent last year.
Weisz and other panelists said the county”™s economy and office-market rebound have been helped by an increase in workforce housing stock, both already on the rental market or slated for development, for employees of companies with offices here.
William V. Cuddy Jr., executive vice president at CBRE Group Inc. in Stamford, attributed the rise in needed housing to the ongoing public-private partnership of county and city governments with private developers. Those partnerships, he noted, are driving the planned redevelopment of the White Plains Transportation Center and downtown New Rochelle as well as the proposed $1.6-billion biotechnology center and life sciences campus, announced in January by County Executive Robert P. Astorino, that Greenwich developer John Fareri has been selected to build on the county”™s North 60 property next to Westchester Medical Center on the Grasslands Reservation in Valhalla.
The partnership between “an engaged county government” and private business “I think is a good reason for our optimism,” said Cuddy.
Weisz said the increased housing inventory will not only provide a supply “for companies who want to relocate here” but also generate additional tax revenue for municipalities. And the conversion of office buildings to residential use will have the added benefit of reducing the county’s office market inventory, he said.
John Barnes, senior vice president and managing director for the suburban division of Reckson, a division of SL Green Realty Corp., said his company at the office buildings it owns and manages is at last starting to see tenants “growing where they are” and signing lease renewals and expansions. Brokers in the last several years have described a dominant leasing trend in Westchester as “musical chairs,” with tenants shuffling from one office building to another within the county, relocations that do little to improve the market”™s vacancy and space absorption rates.
Barnes noted the expansion by the state”™s largest biotech company, Regeneron Pharmaceuticals Inc., into 1 million square feet of space on the Landmark at Eastview campus in 2015 and Regeneron”™s purchase of undeveloped land there to allow for future growth. Yet “a lot of our existing product” in the county”™s 22 million-square-foot office market is not suited to accommodate the growth of the life science, biotech and health technology businesses transforming the commercial landscape here, Barnes said.
Weisz said that owners in the stagnant office market invested in their buildings “and most of our products have improved.” As a result, “Tenants are looking at Westchester now in ways that they weren”™t before.”
He predicted that office rents in 2016 will “dramatically increase.” Anticipating that rise, tenants are looking to lock in lower rates now, Weisz said.
“The suburbs are not dead,” said Thomas Sklow, vice president of development and leasing at Keystone Property Group. “People want us to believe it is, but they”™re not.”
Keystone, a Pennsylvania- based real estate company, in late 2014 entered the Westchester market with its purchases of Mack-Cali”™s Talleyrand Office Park in Tarrytown and Taxter Corporate Park in Elmsford. Sklow said Keystone at Taxter is embarked on an $8 million capital improvements project to make more publicly visible and more attractive to tenants a three-building, nearly 500,000-square-foot complex that he called “probably the best-kept secret in Westchester.”
Sklow said millennials are “the driving force” behind the continued vitality of suburbs. Millennials in their early 30s are getting married and having children and finding the costs of city living are prohibitive, he said. “The reality is that people who live in the city are trying to get into Westchester,” he said.
Sklow and other panelists said the new Tappan Zee Bridge under construction also has an impact on the Westchester economy and real estate market.
“You really never build a $4 billion bridge where nothing happens,” said Sklow. “The bridge is a big dynamic. It”™s going to cause so much economic activity in this marketplace that I don”™t think many of us understand.”